Big Lots 2014 Annual Report Download - page 107

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Selling and Administrative Expenses
Selling and administrative expenses were $1,664.0 million in 2013, compared to $1,639.8 million in 2012. The increase of
$24.2 million or 1.5% was primarily due to increases in store occupancy expenses of $18.5 million, distribution and
transportation expenses of $6.9 million, corporate office payroll of $4.8 million, and a non-recurring litigation settlement of
$4.4 million, partially offset by decreases in professional fees of $5.3 million and share-based compensation expense of $4.7
million, and a gain on the sale of real estate of $3.6 million. The increase in store occupancy expenses was primarily the result
of an increase in the average number of stores operating per month in 2013 as compared to 2012. The increase in distribution
and transportation expenses was primarily due to an increased number of merchandise cartons flowing from our distribution
centers to our stores. The increase in general office payroll expenses was primarily driven by separation activities that occurred
during the second, third, and fourth quarters of 2013 combined with annual merit increases. The non-recurring litigation
settlement was the result of a loss contingency for a legal matter that was finalized in the second quarter of 2013. The decrease
in share-based compensation expense was primarily driven by the forfeiture of awards by individuals affected by separation
activities and the associated reversal of costs. The decrease in professional fees was primarily driven by decreased consulting
fees related to various ongoing information systems projects and decreased legal expenses related to pending litigation and
other matters. The gain on sale of real estate resulted from our sale of an owned store location in the third quarter of 2013.
As a percentage of net sales, selling and administrative expenses increased by 100 basis points to 32.5% in 2013 compared to
31.5% in 2012. The primary drivers of the 100 basis point deleverage in selling and administrative expenses were the 2.7%
decrease in overall comp performance, as the percentage increase in expense dollars was commensurate with the growth in
store count, and the increase in our distribution and transportation expenses. Our future selling and administrative expense as a
percentage of net sales rate is dependent upon many factors including our level of net sales, our ability to implement additional
efficiencies, principally in our store and distribution center operations, and fluctuating commodity prices, such as diesel fuel,
which directly affects our outbound transportation cost.
Depreciation Expense
Depreciation expense increased $10.1 million to $113.2 million in 2013 compared to $103.1 million in 2012. The increase is
directly related to our new store openings in both 2013 and late 2012, investments in systems, and capital spending to support
and maintain our stores and distribution centers. Depreciation expense as a percentage of net sales increased by 20 basis points
compared to 2012.
Operating Profit
Operating profit was $230.1 million in 2013 as compared to $311.8 million in 2012. The decrease in operating profit was
primarily driven by the items discussed in the "Net Sales", "Gross Margin", "Selling and Administrative Expenses", and
"Depreciation Expense" sections above and the impact of the occurrence of a 53rd week in 2012 that did not recur in 2013. In
addition, our operating profit in 2012 increased by approximately $5.0 million from the occurrence of the 53rd week.
Interest Expense
Interest expense decreased $0.9 million to $3.3 million in 2013 compared to $4.2 million in 2012. The decrease in interest
expense was primarily driven by decreased borrowings in 2013. We had total average borrowings (including capital leases) of
$158.7 million in 2013 compared to total average borrowings of $200.3 million in 2012. The decrease in total average
borrowings was primarily the result of utilizing the excess of our cash inflows from operations, which exceeded cash outflows
from investing activities, to repay portions of our indebtedness.
Income Taxes
The effective income tax rate in 2013 and 2012 for income from continuing operations was 37.7% and 38.1%, respectively.
The lower rate in 2013 as compared to 2012 is primarily due to the recognition of higher employment-related tax credits in
2013, which benefited the tax rate, partially offset by fewer discrete settlement benefits.